From John Curry, May 9, 2010
Formula bloated city pensions
Nurse's base pay was $55,000, retired, she gets $191,400
Twenty-one people draw $100,000-plus annual pensions from the troubled Cincinnati Retirement System, many by including tens of thousands of dollars in overtime and unused vacation and sick time to boost their retirement benefits.
The list of the city's top-paid retirees, which also includes another 18 people receiving pensions that top $90,000, is led by Karen Jetter, a former University Hospital nurse now drawing a $191,400 annual pension - more than three times her salary when she retired. That was made possible by a since-discarded formula under which more than $130,000 a year in overtime, cash-outs of unused leave and other extras factored into Jetter's retirement benefits, city records show.
Jetter, 65, of Erlanger, makes no apologies for her $15,950-a-month pension, arguing that she often "worked the equivalent of several jobs" over her 30-year career. She also acknowledges that she willingly worked the extra overtime hours and stockpiled sick and vacation time to "build it up to a nice amount" by the time she retired in 2005.
Other city retirees and employees followed the same script, using large amounts of overtime, accumulated vacation and sick time to significantly increase their pensions.
Combined with annual 3 percent cost-of-living increases, the provisions allow many to draw pensions well beyond what they formerly earned, in the process pushing up pensions that began below $100,000 into the enviable six-figure category - a threshold very few public retirees cross.
Former Greater Cincinnati Water Works Director Richard Miller, for example, who earned about $95,000, draws a $133,289 pension based in part on nearly $38,000 in unused time off cashed in when he retired in 1993.
A similar $33,690 lump-sum payment, spread over three years for pension purposes, has helped lift the retirement check of Thomas Young, former city engineer and traffic engineer, to $124,920 - 55 percent higher than his final $80,400 pay. And former deputy city manager Richard Castellini, who was paid about $98,500 in his final year, included a $43,353 lump-sum payment in the calculation that this year will produce a $115,571 pension. (The city salary figures, officials said, could include bonuses in addition to base pay.)
'A blank check'
Pension experts view the old formula - which, although eliminated for new employees more than a decade ago, still governs the future benefits of many longtime workers on the city's payroll - as an invitation to fatten retirement checks by adhering to the letter, if not the spirit, of pension guidelines.
"When you throw overtime, vacation and sick time into a pension, you might as well write a blank check," said Steve Erie, a political science professor and director of urban studies at the University of California at San Diego.
"True, employees are playing by the city's rules, but people are very good at gaming the system," added Erie, a widely respected expert on public compensation. "Pension formulas like that are insanity. If you're going to blame anyone, start by blaming the city for making it possible."
Hefty $100,000-plus pensions are the exception in the city retirement plan, where only about one-quarter of the roughly 4,500 pensions being paid to retirees and beneficiaries exceed $40,000 a year.
Ironically, some of the biggest pensions now being paid by the city's retirement system stemmed from City Hall's effort in the late 1990s to control spiraling pension costs.
Concerned that existing pension policies based on salaries, overtime and other extras were not only costly but also wildly unpredictable and hampered long-term planning, top city leaders devised a strategy to remedy the problem.
Active employees on the city's payroll before July 1998 could choose between a pension formula that guaranteed them a 2.5 percent "service multiplier" for each year worked, based only on their salary, or a 2.22 percent alternative under which overtime and payments for unused leave also were counted. All new workers hired later would have to use the no-overtime formula.
The city's basic pension formula multiplies the number of years worked by 2.5 or 2.22 percent. So, at the 2.5 percent level, if someone worked 20 years, he would get 50 percent of his final salary - 20 times 2.5 percent.
Then-City Manager John Shirey hoped workers would find the bigger number appealing.
"I was trying to deal with the problem of people loading up on overtime and so forth, all geared toward their pension, in a way that would bring some consistency to the system in terms of the costs way down the road," Shirey said last week. "The thinking was, if you give people a chance to lock in a higher number, they might jump at that."
For a $50,000-a-year employee who retired after 30 years, the 2.5 percent figure would guarantee a pension equal to 75 percent of his pay, or $37,500. The lower 2.22 percent multiplier, in contrast, would guarantee only $33,300.
Many city workers, though, realized this was one time when a bird in the hand was not worth more than two in the bush. Because by working overtime and accumulating large balances of unused leave, the lower formula, they saw, ultimately could produce much higher pensions.
Within a few years, that had become painfully obvious.
In 2002, then-Councilman Pat DeWine uncovered two city supervisors whose overtime tab had been negligible before 1998, but then, in the year before they were eligible to retire, worked up to $25,382 in overtime - extra pay that could be used to hike their pensions.
"There's no question some shenanigans were going on in inflating those final-year salaries," Shirey said.
Even so, Shirey did not try to force a no-overtime pension policy on all employees in the city's retirement system - a group that excludes police officers, firefighters and others in state plans.
"Politically, I wasn't going to win that battle," he said. "So the next best thing was to at least make it mandatory for new employees and try to entice as many existing ones as possible to go to the higher plan. Overtime shouldn't drive pension costs."
At City Hall, it still does, however, and will until employees who have been with the city for at least 12 years, dating back to the 1998 formula choice, retire in coming decades. Of the 21 city pensions above $100,000, 14 are based on calculations that can include overtime and other extras.
Retirees, though, argue they should not be faulted for abiding by provisions established by the city. The fact that the pension system now is viewed as financially unsustainable - without major changes, the $2 billion retirement fund will go broke in about 20 years, consultants warn - is, they insist, a problem of the city's making, not theirs.
"I blame the city for not being consistent and not paying into the system what it should have over the years," said Max Brown, who draws a $108,160 pension based on a 38-year career in UC's Department of Mechanical and Industrial Engineering. Brown, who retired in 1998, added that he turned down several offers over the years that would have doubled his salary, motivated largely by a generous retirement health plan.
"My basic problem is that I worked toward retirement all my life and now I am being called greedy for wanting what was guaranteed by the city," Brown said.
'Devotion to the job'
Nurse Jetter, who still works occasionally at University Hospital, said that professional commitment blended with pension considerations in her decision to work overtime and hold on to vacation and sick time.
"It was 100 percent of my decision to stay," Jetter said of the city pension plan, to which some University Hospital and University of Cincinnati employees belong.
"A lot of overtime was available and I worked a lot of hours. It was a personal sacrifice, but the plus was you'd get the extra cash now and I knew it would make for a better pension later. If you don't give people credit for that in their pension, you take away a big part of the incentive for them to work all those hours."
In Jetter's case, the overtime and leave provisions were a huge incentive that allowed her pension to balloon over the past five years to $191,400.
City records show that as much as $133,876 in overtime and lump-sum payments per year factored into her pension, which is based on employees' three highest-paid years. The records also indicate that Jetter's salary in those years was $85,000-plus, but Jetter, saying that figure apparently includes bonuses and other salary enhancements, said her base pay never exceeded the mid-$50,000 range.
Her response to those who question such a wide disparity between her salary and pension, Jetter said, is simple: "It's not all about the money."
"You're providing service," she said. "You see a benefit later, but it begins with devotion to the job."
UCSD's Erie and others find such explanations unpersuasive.
"I think it's more about devotion to self," Erie said.
"That's why so many public pensions are on the endangered species list. It's that kind of moral amnesia and lack of concern for the long-term common good that got us in so much trouble."